Since late September, the ICE futures market has entered a “W”-shaped double bottom market, and the center of gravity of the main contracts has continued to move upward. The high of the front-month contract on November 22 was 73.85 cents/pound, which was higher than the low of 65.41 cents/pound at the end of August. 8.44 cents/pound, an increase of 12.9%. Some institutions and foreign investors believe that, both from a technical perspective and from the external market, this rising trend of ICE has not been destroyed, and they do not rule out the possibility of testing annual highs of 75 cents/lb and 77.98 cents/lb (December contract).
The editor believes that although the harvest and listing of U.S. cotton are relatively smooth, the pressure of large quantities of northern hemisphere cotton is gradually emerging, and the strengthening of the US dollar has triggered continued depreciation of currencies in various countries, including China, which has affected the textile and apparel export trade, but in the short term, ICE has many positive factors. Dominant, the March contract is expected to exceed 75 cents/pound. Because the picking in some U.S. cotton areas is lagging behind compared to previous years and the drought is severe, there is a short-term squeeze by bulls and speculative funds in the front-month contract. Similar to the Zhengfu CF1701 contract, the prices of the ICE front-month and far-month contracts continue to be “inverted.”
First of all, India’s new monetary policy has caused a significant reduction in the volume of new cotton on the market and increased export defaults, providing opportunities for contracted exports of US cotton in 2016/17.
Since the use of banknotes with denominations of 1,000 rupees and 500 rupees has been stopped, and the exchange of new banknotes and small-denomination banknotes has been very slow, and Indian farmers do not accept checks as long as cash, the sale, purchase and processing of seed cotton have slowed down significantly, resulting in At least 1 million bales of cotton export contracts have had to be delayed or canceled. Foreign buyers are also very cautious about purchasing Indian cotton on the 1/2/3 shipping date. The trade of cotton, soybeans and other agricultural products has been greatly affected.
Secondly, a stronger U.S. dollar cannot hinder the rise of commodities, and the momentum for ICE’s rebound has not yet ended (the U.S. dollar index is stable above 100).
According to industry analysis, as expectations for Trump’s future tax cuts, increased spending, infrastructure investment and other measures have increased, commodity prices have continued to rise. Goldman Sachs believes that the bullish view of the U.S. dollar and the bullish view of commodities can coexist at the same time. With manufacturing picking up around the world, investors should bet on higher commodity prices next year. It is worth noting that some research and investment institutions have analyzed that the probability of the Federal Reserve raising interest rates in December has reached 90%. It is expected that there will be three more interest rate hikes in 2017. The impact on the commodity futures market remains to be seen.
Third, consumer demand from spinning mills in countries such as Pakistan and India has spilled over, and the proportion of high-count yarn and combed yarn has increased.
According to USDA statistics, as of November 10, Vietnam, Indonesia, China, Pakistan, and India had signed contracts for 271,000 tons, 144,000 tons, 183,000 tons, 104,000 tons, and 42,000 tons of US cotton respectively in 2016/17. Compared with the same period last year, The growth rates reached 114.85%, 100%, 408.3%, 593.3%, and 1300% respectively, while the import volume of US cotton from Mexico and Turkey remained stable. On the one hand, with the comprehensive update of equipment and technology in Southeast Asian countries, the production and consumption of high-count yarns of C30S and above have increased significantly, and the demand for high-quality machine cotton has risen rapidly; on the other hand, concerns about the slow launch of Indian lint cotton and insufficient export capabilities have intensified , not only buyers such as Vietnam and Indonesia have adjusted their inquiry and purchasing directions, but domestic yarn mills in India and Pakistan, in addition to paying attention to US cotton, have also signed more contracts for Central Asian cotton (mainly Turkmenistan, Kazakhstan and other origins) and Spanish and Brazilian cotton. �
